L.A. must take next step to help business: Editorial

As Mayor Eric Garcetti seeks to follow through on a campaign promise to ease the cost of doing business in Los Angeles by phasing out the gross-receipts tax, some City Council members sound skeptical, worrying about the immediate cost to the city budget.

This reluctance is curious, given the council’s unalloyed support recently for a separate plan to give up tax revenue in the short run in exchange for benefits in the long run.

The council voted 14-0 (with one member absent) last week to approve a tax break of up to $59 million over 25 years for the Westfield Group as part of an agreement to speed up construction of Westfield’s The Village at Topanga, the new mall in Woodland Hills that will connect two existing malls to complete a nearly mile-long stretch of major stores, shops, restaurants and office space.

The tax break is controversial. Critics say Westfield, an international giant, shouldn’t need the money.

But offering the incentive is a good move for the city. The $335 million project, planned to open in fall 2015, is expended to generate $140 million in tax revenue over the same 25 years and create 1,400 jobs. Even though Westfield has announced it is delaying construction of a hotel as part of the 549,394-square-foot complex at Victory and Topanga boulevards, the mall itself on the edge of Warner Center will add to the west San Fernando Valley’s economic magnetism.

By voting to approve the tax break, City Council members showed they’re willing to give up some tax revenues now in order to encourage business that will pay off bigger in the decades ahead.

L.A. residents should hope their representatives apply the same philosophy to the gross-receipts tax, and work with Garcetti to free business owners of this unusual burden.

Garcetti, who was part of piecemeal efforts to ease the tax when he was a councilman, is expected to propose a phase-out when he submits his first city budget in April, presumably based on the 15-year plan suggested in 2012 by L.A.’s Business Tax Advisory Committee. It would be a smart step to eliminate the tax that takes a percentage off the top, discourages business investment and puts L.A. at a disadvantage to neighboring cities. It must be done aggressively but deliberately, recognizing that the business tax currently generates more than $400 million a year in city revenue, about 10 percent of the budget.

Several council members have sounded skeptical. Paul Krekorian warns that losing that revenue will cost residents basic city services.

But a University of Southern California study in 2011 concluded that eliminating the tax actually would add revenue by allowing creation of new business and jobs.

Making L.A. business-friendly is one of the key goals this editorial board set out for Garcetti when he took office, along with reforming the Department of Water and Power, reining in public-employee retirement costs, encouraging a federal immigration overhaul and raising public engagement with city government.

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Specific tax breaks like the one granted to Westfield are one good way to send a message that L.A. is open for business. Phasing out the gross-receipts tax would be an even better way.